Collaboration of Luiz Carlos Benner and Amoai Salinas
The Chamber of Deputies approved a text that reformulates income taxation, extends the monthly exemption from Income Tax to individuals and, on the other hand, begins to tax dividends starting in 2026; a clear sign that the government is mobilizing to achieve income that is now exempt. The bill is still pending before the Federal Senate. If approved by the Senate, the bill will be sent to the President of the Republic for sanction, in which case the President will have 15 days to sanction or veto. The project can only be applied for 2026 if approved in 2025.
Main impacts if the project is sanctioned this year:
- Dividends may be taxed as of 01/01/2026 (without retroactivity). The incidence targets results generated as of that date, avoiding taxing accumulated profits from previous years. In this sense, there will be a withholding of 10% of personal income tax on dividends/profits paid to individuals by the same legal entity, when the sum exceeds R$ 50,000 in the month. The text was adjusted to allow profits and dividends that were not paid in 2025 to be distributed by 2028 without taxation, subject to the terms provided for in the approval act.
- It will be possible to impose 10% of Withholding Income Tax on Dividends remitted abroad, excluding profits and dividends whose distribution has been approved by December 31, 2025. If the sum of effective corporate tax plus withholding on dividends exceeds the standard nominal amount of IRPJ+CSLL, credit will be granted to investors resident abroad.
- It is intended to establish Minimum Personal Income Tax (IRPFM): it applies when the annual income exceeds R$ 600 thousand (considering all income received in the calendar year, including those taxed exclusively or permanently and those exempt or subject to a zero or reduced rate), the tax will be calculated progressively for income between R$ 600 thousand and R$ 1.2 million, with a charge reaching 10% for incomes equal to or above R$ 1.2 million, subject to the calculation base defined and deduction allowed in the Bill.
- If the effective tax on the Legal Entity added to the effective IRPFM in the Federal Tax exceeds the nominal parameter (IRPJ+CSLL), the Individual gets a discount (reduced) on the IRPFM so that there is no overtaxation.
- It is also estimated that effective personal income tax exemption will be implemented up to R$ 5,000.00/month for individuals, with a discount/transition of up to R$ 7,350.00/month, above that amount, nothing changes. (Monthly Tax Reduction)
- The project includes the establishment of a Tax Regularization Program for low-income individuals (Pert-Low Income): renegotiation of tax debts with easy conditions aimed at individuals who, in 2024, had taxable income of up to R$ 7,350/month or R$ 88,200/year, to negotiate tax and non-tax debts due by the date of publication of the Law.
How to prepare for potential changes:
- Map income sources (salaries, self-employed, rents, dividends)
- Project 2026 with and without profit distribution
- Assess the impacts of the minimum personal income tax and possible withholding taxes (Brazil and abroad)
- Organize documentation to adhere to possible regularization programs, if applicable.
- Get ready for the new scenario with simulations and distribution/compensation policy adjustments in 2025.
